IT CAPABILITIES AND FIRM PERFORMANCE: A RESOURCE-BASED, ALLIANCE PERSPECTIVE Introduction

Transcription

1 ASAC 2007 Ottawa, Ontario Shamel Addas (student) Alain Pinsonneault Desautels Faculty of Management McGill University IT CAPABILITIES AND FIRM PERFORMANCE: A RESOURCE-BASED, ALLIANCE PERSPECTIVE 1 Information technology-based alliances are rapidly spreading in organizations, which calls upon researchers to develop an adequate theoretical lens to examine this phenomenon and its key associated outcomes, such as the business performance of alliance firms. However, strategic alliances are mostly examined from a transaction cost economics perspective, and the results on performance are inconclusive at best. This paper proposes an alternative lens the resourcebased and applies an extended version of it to explain the performance of firms in IT-based alliances. A conceptual model is developed that examines the impact of shared information technology resources on firm performance. Also, a measurement scale for these resources is developed and preliminarily validated. 1. Introduction One of the most pressing goals for information systems (IS) researchers has been to determine the extent to which information technology (IT) creates business value for the firm. Traditionally, the focus has been on the performance of individual firms that are competing against each other. A dominant framework that has been applied to account for firm performance is the resource-based perspective (RBV). The RBV posits that firms start internally by assessing their strengths and weaknesses, and by adopting a bundle of unique resources that help them achieve competitive advantage (Barney, 1991; Grant, 1991). In this, competitive advantage comes mostly from internal firm characteristics and IT resources may be a source of competitive advantage (Wade & Hulland, 2004; Rivard et al., 2006). While this framework is useful for explaining individual firm performance, it has not been consistently applied to examining performance within a strategic alliance context. Alliances are rapidly becoming ubiquitous in today s business environment (Rai et al., 1996; Das & Teng, 2000). Moreover, IT is becoming increasingly important in enabling and supporting these interfirm alliances (Sambamurthy & Zmud, 2000; Melville et al., 2004). Therefore, it is important to understand the relationship between IT and firm performance in an alliance context. In fact, the performance of alliances in general is one of the most interesting yet underresearched areas in management (Gulati, 1998). However, the results have been inconclusive at best (Rai et al., 1996; Gulati, 1998). Performance in alliances has mostly been examined from a transaction-cost perspective. A gap in the literature exists where the RBV has mostly been absent from accounting for strategic alliance phenomena with a few exceptions (e.g., Eisenhardt & Schoonhoven, 1996; Das & Teng, 2000). And even those few RBV studies that exist did not empirically assess the performance within alliances. This paper applies the RBV in the context of assessing performance of firms in IT-based alliances for two reasons. First, it is a suitable lens since being in an alliance naturally involves the sharing of resources or accessing of the partner s resources. Second, by adopting the resource as the unit of analysis, it provides a fresh perspective that allows us to examine whether or not the impact of IT capabilities on firm performance is contingent on the sharing of these 1 The authors would like to acknowledge the help of Suzanne Rivard in providing useful feedback on this paper. 231

2 resources, and to identify which of these resources generate business value for the firm when shared across the alliance. By looking at the break-down of the firm s portfolio of resources, the mixed state of findings may be partly alleviated since we can see which resources increase performance for the focal firm when shared with alliance partners and which do not. However, to apply the RBV to a strategic alliance context, it must first be extended. In its current form, the RBV is mostly inward-looking, since it is based on the assumption that firms are heterogeneously endowed with idiosyncratic resources that are owned or controlled within their boundaries (Lavie, 2006). These assumptions make the RBV ideal for explaining performance of individual firms rather than firms involved in strategic alliances that rely on sharing some of their critical resources. To be suitable for an alliance context, some of the RBV s theoretical assumptions, as well as its conceptual and operational definitions, must be adjusted. This paper extends the RBV and develops a measurement scale for a model examining the impact of shared firm resources on performance. Hence, the objective of the paper is threefold. The first objective is to develop a resource-based model of ITbased strategic alliances. The model attempts to answer the following questions: (a) what are the key IT capabilities that can be shared across the alliance, (b) what is the impact of these capabilities on firm performance when they are not shared, and (c) what is the impact of these capabilities on firm performance when they are shared? The second objective is to extend the RBV to be applicable to this IT-based alliance context. The third objective is to develop and preliminarily validate a measurement scale of the shared IT capabilities. The structure of the paper is as follows. The next section ( 2) provides the theoretical development of the RBV model of IT-based strategic alliances, with a re of the RBV and strategic alliance literatures. The conceptual definitions are built-up and the model is presented along with research propositions. An extension of the RBV is suggested. This is followed by the scale development and preliminary validation for the shared IT capabilities ( 3). The paper concludes by discussing the implications and limitations and suggesting avenues for future research ( 4) The Resource-based View 2. An RBV Model of IT-based Strategic Alliances Before applying it to the IT-based strategic alliance context, the RBV is briefly examined from a non-alliance perspective, in order to determine whether it could potentially be suitable for explaining performance of firms involved in IT-based alliances. The RBV is based on the premise that firms are endowed with heterogeneous resources that are idiosyncratic for the firms that possess them (Barney, 1991; Grant, 1991). These resources are then the main source of competitive advantage for the firm. In order for a resource to deliver competitive advantage, it must exhibit the following attributes: value, rarity, imperfect imitability, and imperfect substitutability (Barney, 1991). In addition, it must be heterogeneously distributed and imperfectly mobile (Peteraf, 1993). Wade and Hulland (2004) elaborated that resource value, rarity, and appropriability lead to a temporary competitive advantage, while imperfect imitability, imperfect substitutability, and imperfect mobility sustain that competitive advantage. A number of IS researchers have adopted the RBV to explain various IT-related phenomena 2. In particular, the RBV provides an adequate lens for examining how IT generates business value for the firm (Melville et al., 2004). Hence, a re of studies examining the impact of IT on firm performance, using RBV as a theoretical lens, was conducted. The key articles found are summarized in Appendix 1 under the category RBV single firm in the second column. A synthesis of the results in Appendix 1 reveals several observations. First, there is a lack of research on IT and business value adopting the RBV 2 For an excellent re, the reader is referred to Wade & Hulland (2004). 232

3 perspective, possibly due to the relative recency of this theoretical lens. This issue is especially acute for empirical studies. Second, there is an overall positive impact for IT capabilities on firm performance (Mata et al., 1995; Bharadwaj, 2000; Bharadwaj et al., 2002; Melville et al., 2004; Ravichandran & Lertwongsatien, 2005; Rivard et al., 2006). Third, there are problems in identifying and operationalizing IT capabilities, especially pertaining to its multidimensional nature. For instance, Bharadwaj (2000) conceptualized IT capabilities as a multidimensional construct but relied on a general ranking from a business magazine to measure it. Fourth, most of the RBV studies on IT and business value adopt a single firm ; they do not recognize that IT resources can also be shared among alliance partners. Fifth, most papers recognize contingent factors related to the impact of IT on performance. These contingencies may be with resources inside the firm (e.g., non-it organizational resources) or with resources outside the firm, such as those resources residing in a firm s network of alliance partners (Melville et al., 2004). This paper is concerned with these latter contingencies. However, in its current form, the RBV is less suitable to explain these alliance contingencies since it is based on the assumption that in order to generate and sustain a competitive advantage, a firm s resources need to be protected within its boundaries in order to avoid substitution, imitation, or being otherwise accessed by competitors. Yet results show that resources shared across alliances also contribute to the competitive advantage of firms (e.g., Chatfield & Yetton, 2000; Mukhopadhyay & Kekre, 2002). Therefore, the traditional inward-looking focus of the RBV on ownership and control of resources is not a necessary condition for competitive advantage (Lavie, 2006). In fact, it is a sufficient but not necessary condition for explaining competitive advantage, which makes it a less ideal theory of competitive advantage for firms in alliances (cf. Mohr, 1982). As Lavie put it: The RBV [ ] cannot, in and of itself, explain how firms gain competitive advantage in an environment in which firms maintain frequent and multiple collaborative relationships with partner firms (2002: C1-2). Moreover, researchers have increasingly been calling for a that considers sharing IT resources across alliance networks (Choudhury & Xia, 1999; Sambamurthy & Zmud, 2000). For instance, the latter maintain that business success depends on embedding IT capabilities in valuable alliance networks. They argue that it is essential for both the IT infrastructure and the people to be interconnected within a network relationship. Therefore, an extension of the RBV would enable us to explain IT business value derived from the sharing of resources in IT-based alliances. But first, the literature on strategic alliances is examined in order to see where the RBV would fit Strategic Alliances Developing new products, entering new markets, bringing out new innovations, responding quickly to environmental demands, and leading large IT projects are complex activities that can be taxing for the individual firm. Moreover, a firm may want to reduce its risks or increase its organizational learning relating to these activities. Therefore, it may look toward forming alliances. A strategic alliance is defined as a voluntary arrangement among firms that exchange or share resources and engage in the co-development of products, services, or technologies (Gulati, 1998). Barney (2002) defined three main types of alliances: (1) joint ventures (JV), where the cooperating firms form and invest in an independent firm, (2) equity alliances, where unilateral or bilateral equity holdings are involved, and (3) nonequity alliances, where cooperation between firms is governed mainly by contracts. The sharing of IT capabilities examined in this paper is not restricted to a particular type of alliance or a particular business process that governs the alliance. So far, alliances have been examined mostly from the transaction-cost perspective (Eisenhardt & Schoonhoven, 1996; Das & Teng, 2000). However, this does not adequately account for many of the important strategic benefits responsible for forming alliances, such as interorganizational learning, enhancing legitimacy, sharing costs and risks in volatile strategic markets, and having quick access to 233

4 strategic product- and/or factor markets (Eisenhardt & Schoonhoven, 1996). Other reasons include coping with complex or ambiguous technologies, economies of scale and scope (Hagedoorn & Schakenraad, 1994; Barney, 2002), and social reasons such as nurturing personal relations and enacting trust and commitment (Eisenhardt & Schoonhoven, 1996). Resources shared in an alliance can be similar or dissimilar. If used ively, similar resources would yield supplementary resources, while dissimilar resources would generate complementary resources (Das & Teng, 2000). This paper is concerned with the pooling of similar resources, where similar IT capabilities are shared between firms Findings from the Strategic Alliance Literature A re of the strategic alliance literature covering the IS- and the strategic management discipline was conducted. Again, the results indicate a dearth of research examining the impact of strategic alliances on the business value of the focal firm (Eisenhardt & Schoonhoven, 1996; Melville et al., 2004). Synthesizing the results, however (see Appendix 1 under the categories Alliance and RBV alliance in the second column) 3, reveals a mixed outcome where performance is increased on some measures rather than others (Venkatraman & Zaheer, 1990; Truman, 2000), for some firms rather than others (Berg et al., 1982; Hagedoorn & Schakenraad, 1994), or for some capabilities rather than others (Berg et al., 1982; Mukhopadhyay & Kekre, 2002; Barua et al., 2004). For instance, empirical results showed that electronic integration has significant s on efficiency but not on iveness (Venkatraman & Zaheer, 1990; Truman, 2000). This may be due to the fact that some capabilities that are integrated with alliance partners are more geared toward efficiency, such as technological IT resources, while others may be more pertinent for iveness, such as business-it strategic thinking (to be introduced later in the section). A segregation of IT resources to be shared in the alliance may alleviate these mixed results and allow us to understand the impact of each shared capability. Further, Berg et al. (1982) found the impact of joint ventures on performance changing between industries (e.g., negative s in the chemicals and engineering industries and insignificant s in the oil resource industries). Although not explicitly examined, an RBV framework identifying the impact of different capabilities may be relevant here since different resources are more salient than others in certain industries. Similarly, Hagedoorn and Schakenraad (1994) found that profitability from alliances where R&D resources were shared improved for some types of firms in some industries, but not for others. Moreover, some direct conclusions can be drawn on the importance of identifying separate capabilities that enhance performance in alliances. For instance, strategic benefits accruing to suppliers in a strategic alliance were found to be contingent on how they enhanced a certain technological capability related to EDI (Mukhopadhyay & Kekre, 2002). Barua et al. (2004) observed an increase in financial performance from customer-side capabilities but a decrease in performance from supplier-side capabilities. Had the capabilities in this example been aggregated, the results on firm performance would likely have been insignificant. Finally, Berg et al. (1982) maintained that R&D-oriented joint ventures positively impact return on assets (ROA) while non-r&d joint ventures exhibited a negative. Together, these studies suggest that it is important to recognize the role of shared resources in strategic alliances on firm performance, and that the type of shared resources matters, and therefore it is important to disaggregate the IT construct into meaningful subcomponents (Melville et al., 2004: 292). Applying the RBV with its emphasis on the business value derived from the different sets of capabilities to the IT-based strategic alliance context would thus be ideal. In addition, the RBV is suitable by nature, since alliances involve the sharing of resources between partners and the desire to gain access to the other side s valuable resources (Eisenhardt & Schoonhoven, 1996; Das & Teng, 2000). Alliances essentially involve the flow of resources between firms (Lavie, 2006). Using an RBV framework would enable us to 3 RBV-alliance refers to studies that employed the RBV and looked at alliance s. Alliance refers to studies of strategic alliance, but where the RBV was not adopted as a theoretical lens. 234

5 see the s of each set of resources that are shared across the alliance. This would also allow for a wider lens to analyze the impact of different types of resources, including technological, human, and relationship-specific resources. This is an improvement over the current situation in IT-related alliance studies, where only the impact of technology resources (e.g., EDI; Internet) is observed (e.g., Venkatraman & Zaheer, 1990; Chatfield & Yetton, 2000; Truman, 2000; Mukhopadhyay & Kekre, 2002; Melville et al., 2004). However, the RBV must first be extended to fit the alliance context An Extension of the RBV for the Alliance Context The RBV has rarely been applied to the alliance context (exceptions: Eisenhardt & Schoonhoven, 1996; Das & Teng, 2000). However, the former were concerned with the decision of forming an alliance and not with the performance impact. Also, they did not reconcile the inherent contradictions between the traditional assumptions governing RBV (e.g., resource immobility) and the resource mobility that results from forming alliances. These tradeoffs are shown in Figure 1. The domain of the traditional RBV is pictured on the left side, where levels of resource mobility, homogeneity, imitability, and substitutability are at their lowest. In this domain, firms compete on their distinct resources and alliances cannot be formed because by definition, they involve the flow of resources whereas in this case the resources (or the services associated with them) cannot flow between partners (Lavie, 2006). On the right side of the continuum, resources are completely mobile, homogenous, imitable, and substitutable. Here, firms have no motivation to form alliances since resources can be freely exchanged in the market or internally developed. Alliances formed in a domain of complete mobility would be only for the purpose of colluding (Lavie, 2006). In between these extremes, a firm s tendency to form alliances increases with the decrease in resource mobility, homogeneity, imitability, and substitutability (shift to the left), in order to obtain these resources that are not otherwise available in the factor market (Das & Teng, 2000). Yet, alliances require some flow of resources between partners, which shifts the domain a bit to the right and relaxes the conditions of heterogeneity and imperfect mobility attributes (Lavie, 2006) 4. As resource attributes shift from left to right, their elasticity is increased, and vice versa (Barney, 2002). Figure 1 Extended RBV for Strategic Alliances 4 This is true for the mobility and homogeneity attributes. For the substitutability and imitability attributes, alliances can be formed when they are at their minimum level or a bit higher, as long as the resources are not easily substituted or imitated as to preclude the motivation to form an alliance to obtain them (hence the domain for alliances for these two attributes in Figure 1 includes both the position at the minimum and a position to its right). 235

6 In addition, the appropriability attribute of resources is modified in the extended RBV since the original assumptions in the RBV were based on firms needing to organize themselves internally as to be able to appropriate benefits from their resources (Lavie, 2006). However, the value and rarity attributes remain the same in the traditional RBV and extended RBV, except that they are now assessed at the level of the alliance rather than the level of the firm. The preceding analysis indicates that the RBV is applicable to strategic alliances if it is extended in this way, and the only difference from the traditional model is a shift in the level of the resource attributes. Next, the extended RBV is applied to IT-based strategic alliances and a model is constructed to assess the impact of shared IT capabilities on performance IT Capabilities: Conceptual Development of the Model Domain specification and concept definitions. First, it is important to set the domain and specify the conceptual definitions of the IT capability constructs in order to achieve adequate levels of content and construct validity (Churchill, 1979; Moore & Benbasat, 1991). The domain specification and concept definitions act as the fundamental building blocks, after which the research model will be presented and a scale developed and preliminarily validated. A literature re was conducted on IT capabilities in the IS literature, as well as on resources and capabilities in the traditional RBV literature in strategic management, in order to gain a deeper insight by examining more than one discipline (Webster & Watson, 2002). The concept of capabilities was introduced by Grant in the RBV literature, who posited that capabilities involve complex patterns of coordination between people and between people and other resources A capability is, in essence, a routine, or a number of interacting routines (Grant, 1991: 122). For Barney, firm resources include all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and iveness (Barney, 1991: 101). Four observations emerge from these definitions. First, it is evident how capabilities here are conceived of in an inward fashion as being internally controlled by the firm. A firm achieves competitive advantage by protecting these resources from external entities. Second, there is a tautology in defining capabilities, in the sense that they are defined in the same terms that describe their consequences of improving performance (Eisenhardt & Martin, 2000; Ravichandran & Lertwongsatien, 2005). Third, these definitions make it clear that capabilities are multi-dimensional in nature and any attempt made to operationalize them must take this into account. Fourth, it can be easily seen that these definitions can be extended to an IT context, and that one can develop a set of IT capabilities that comprises unique technological and organizational processes and routines. 236

7 The domain for the IT capabilities has been clarified above, where the traditional RBV was extended to an alliance domain. Hence, this paper examines IT capabilities that lend themselves to being leveraged across the IT-based alliance. Moreover, the construct domain should be broad enough to capture the multidimensional nature of IT capabilities, but not so broad as to subsume other distinctive capabilities under the same label. Based on the above, IT capabilities are defined as the firm s ability to leverage a combination of IT-based assets and routines within the firm or across the alliance, in unique ways that support business strategy The RBV model of IT-based strategic alliances. As noted earlier, there is a scarcity of empirical research on IT capabilities, so operational definitions are scant. However, several studies provided conceptual definitions. For instance, Ross et al. (1996) identified three distinct, yet highly interdependent assets that form an overall IT capability: the technology asset, the human asset, and the relationship asset. However, the authors committed a tautology by defining the overall IT capabilities as involving the efficient management of these three assets. Similarly, Feeny & Willcocks (1998) presented three overarching areas for IT capabilities: the design of IT, delivery of IT services, and strategic alignment and business vision. From these categories, they derived nine core IT capabilities, and they argued that these nine capabilities represented core activities that needed to be retained within the boundaries of the firm, and that beyond these the organization could decide whether or not to outsource the remaining activities. However, although taking a step beyond the traditional RBV by realizing that some capabilities flow to alliance partners, the authors focused on the resources that were kept in-house and did examine the sharing of resources between partners. Although Bharadwaj (2000) provides one of the earliest attempts to operationalize IT capabilities, her operational definition discussed earlier (yearly magazine ranking) was problematic compared to the well-developed conceptual one which comprised tangible resources (IT infrastructure), human resources (managerial and technical IT skills), and intangible resources (knowledge assets and synergy). Both construct validity and content validity are adversely affected since this operational definition does not adequately correspond to the conceptual definition, and since it does not capture the essence of its multidimensional nature. Moreover, with the yearly ranking, there is no way to assess the reliability of the measure. Similarly, Broadbent et al s. (1999) operational definition of the IT infrastructure capability reflected only a simple count of IT services provided, while ignoring the quality or uniqueness of these services. Moreover, by focusing on the IT infrastructure capability, the study only taps into one dimension of IT capabilities. Finally, the reliability and validity of the measures were not assessed. Bharadwaj et al. (1999) provide a more promising approach to assessing IT capabilities. Here, the authors develop and validate a measurement scale for a higher-order construct comprising of six dimensions. The measures were validated via a Delphi method and focus groups, in addition to using factor analysis to assess unidimensionality, construct validity, and reliability. In light of the adequacy of the procedures followed in that study and due to the fact that most of the identified dimensions fit within this paper s construct domain, their study was selected as to provide a preliminary list of constructs for the IT capabilities for this paper. However, some modifications were made to fit with the construct domain and conceptual definition, and some constructs were added or deleted to the list of Bharadwaj et al. (1999). The results are shown in Appendix 2, which includes four IT capabilities constructs from Bharadwaj et al. (1999), in addition to a fifth construct from Sambamurthy & Zmud (2000). As indicated from the synthesized studies in the third column, these dimensions of IT capabilities provide an adequate breadth of the construct domain. The RBV model of IT-based strategic alliances is illustrated below in Figure 2, and this is followed by an over of each IT capability, and a presentation of the propositions. 237

8 Overall, the model presents a set of IT capabilities and assesses their direct impact on firm performance when they are not shared, and the moderating when they are shared across the alliance. The general positive of IT capabilities on firm performance, which was discussed earlier (see Appendix 1) guides this model. Moreover, the resource sharing construct reflects whether the firm s IT capabilities are shared with alliance partners. The moderating assesses whether the impact of these shared resources on performance is higher than the performance of these resources if they were not shared. As discussed earlier, reasons for this include synergy, economies of scale, economies of scope, and interorganizational learning. Below is a description of each of the five IT capabilities, followed by the specification of research propositions. Figure 2 RBV Model of Strategic Alliances 1. IT-business partnerships: This capability reflects the firm s ability to foster rich partnerships between the technology providers (IT professionals) and the technology users or business unit managers (Bharadwaj et al., 1999). It is mostly an internal capability in the sense that it refers to the relationships between the business side and the IT side within the firm boundaries. However, when integrated across an 238

9 alliance between two or more business partners, the combined of this capability may become larger than the sum of its parts. In other words, each firm possesses its own set of capabilities reflecting how IT professionals form relationships with business unit managers within the firm boundaries. But with integration, the alliance relationship allows this capability to disseminate across the firms boundaries, leading to a more ive and more comprehensive capability where the IT professionals of both firms foster business relationships with the business unit (BU) managers of both firms. Therefore, this dimension fits within the construct domain for IT capabilities. 2. Business-IT strategic thinking: This represents management s ability to envision how IT contributes to business value and the ability to integrate IT planning with the firm s business strategies (Bharadwaj et al., 1999). This capability fits with the construct domain since it can be leveraged across the alliance by combining management s abilities to envision value-adding ways for IT that contribute to the business strategies of both alliance partners. 3. IT management: This capability taps into activities related to the management of the IT function, such as IS planning and design, IS applications delivery, IT project management, and planning for IT standards and controls (Bharadwaj et al., 1999). It fits with the construct domain and it is a dimension that reflects unique firm capabilities that can be pooled across the alliance. 4. IT infrastructure: This capability represents the foundation for enterprise applications and services and is comprised of data, network, and processing architectures (Bharadwaj et al., 1999). It influences the reach and range available to a firm and its network partners. To the extent that this infrastructure capability is sharable across the alliance relationship, it represents an important concept that is included in the domain for IT capabilities. Two capabilities from Bharadwaj et al. (1999) were not included in this paper and they are: external IT linkages and IT business process integration. The reason for that is that these capabilities represent the integration of the firm s capabilities within the firm and across firms, and this paper treats integration as a conduit through which the resources and processes of the focal firm may be shared with the resources and processes of its alliance partners. Therefore, it is already reflected in the resource sharing construct. A fifth capability, taken from Sambamurthy & Zmud (2000) is added to the model: 5. Solutions delivery: This is defined as gaining access to and ively managing IT assets such that continual streams of IT-based solutions are provided in response to emerging business opportunities and challenges (Sambamurthy & Zmud, 2000). It fits with the construct domain since it can be leveraged across the alliance. An example of this capability at play is demonstrated by Sony, whose main driver for competitive advantage is not its assets (miniaturized electronic innovations), but rather its capability to provide a continuous stream of these miniaturized solutions (Barney, 2002). The direct s in the model represent the impact of IT capabilities on performance for resources that are not shared with alliance partners, which is consistent with the traditional RBV. Bharadwaj et al. (2002) linked these capabilities to firm performance through a higher-order construct that represented an overall IT capability. This is also consistent with results from the literature re discussed earlier where IT capabilities had a positive impact on firm performance (see Appendix 1). Hence, the following propositions are suggested for the direct s: Proposition 1a: The IT-business partnerships capability is positively associated with firm performance. Proposition 2a: The business-it strategic thinking capability is positively associated with firm performance. Proposition 3a: The IT management capability is positively associated with firm performance. 239

10 Proposition 4a: The IT infrastructure capability is positively associated with firm performance. Proposition 5a: The solutions delivery capability is positively associated with firm performance. The rationale for the moderating s in the model was also presented earlier, and Appendix 1 demonstrates preliminary support for the impact of sharing resources between alliance partners and performance. For instance, interorganizational learning is a critical driver of competitive advantage where firms in an alliance develop ive interfirm knowledge sharing routines by sharing their resources (Dyer & Singh, 1998). Interorganizational learning can especially be ed with the solutions delivery capability, where technical know-how can be exchanged, and with the IT management capability, where management skills are shared. Moreover, enhancing legitimacy can be best seen when applied to the sharing of the business-it strategic thinking capability, where senior executives would use their visions of making IT a strategic enabler for their firms to enhance the legitimacy of their alliance. It can also draw on the IT-business partnerships capability, where partnerships between the IT-side and the business-side across the alliance enhance the legitimacy of these alliances through the social relations made (Eisenhardt & Schoonhoven, 1996). Sharing the IT infrastructure capability can be seen as allowing for the sharing of costs and risks between alliance partners, especially when they have to deal with volatile markets or ambiguous technologies. As shown in Appendix 1, several studies demonstrated the positive s of sharing this capability (Chatfield & Yetton, 2000; Mukhopadhyay & Kekre, 2002; Melville et al., 2004). Hence, the following propositions are offered to represent the moderating s in the model: Proposition 1b: Resource sharing moderates the of the IT-business partnerships capability on firm performance. Proposition 2b: Resource sharing moderates the of the business-it strategic thinking capability on firm performance. Proposition 3b: Resource sharing moderates the of the IT management capability on firm performance. Proposition 4b: Resource sharing moderates the of the IT infrastructure capability on firm performance. Proposition 5b: Resource sharing moderates the of the solutions delivery capability on firm performance Operational Definitions 3. Operational Definitions and Scale Development IT capabilities: Appendix 2 shows the conceptual and operational definition for each capability. Some conceptual definitions were modified slightly to fit with the construct domain. For instance, the definition for the IT infrastructure capability was modified to reflect that the infrastructure is sharable across business partners. Moreover, the definition for IT management was modified to remove the part that deals with IT applications delivery, in order to discriminate between this measure and the measure for solutions delivery and to avoid potential cross-loadings between these constructs. As for the operational definitions, one item was removed from the original Bharadwaj et al. (1999) listing under the IT management dimension due to tautology. Other items were kept despite being dropped by the original authors in order to retain as much as possible of the essence of the construct domain and due to the newness of these items which have not been validated before except in that one study. For the solutions delivery construct, new items must be developed since Sambamurthy & Zmud (2000) did not operationalize it. A Web of Science cited reference search revealed one paper that drew on their study to assess this construct (Schwarz & Hirschheim, 2003) Although the authors did not formally operationalize the solutions delivery construct, they undertook a qualitative approach to assess it, through 240

11 six case studies and inters with executives and other key informants. The first three of the four solutions delivery items in Appendix 2 were inspired from these inters. The fourth was developed for this paper, based on the concept definition, to better capture the domain for this construct. Overall, all of the items in Appendix 2 are designed such as to include different shades of meaning in order to reduce measurement error, and to preclude socially accepted responses (Churchill, 1979). Firm performance: Although it may be intuitive to assess firm performance at the dyadic level or the alliance level, several difficulties arise with this approach, including possible asymmetries in performance and the lack of measures available for the dyad (Gulati, 1998). This problem is exacerbated if the alliance network is expanded beyond a bilateral, dyadic level. Therefore, firm performance is assessed here for the focal firm, and the measures are adopted from Rivard et al. (2006), including market position and profitability. Four items represent market position (annual revenue, growth in annual revenue, market share, and growth in market share) and three items represent profitability (profit margin, return on investments, and financial liquidity). Respondents will be asked to assess their firm performance relative to competition on a five-point Likert scale (1: much below average 5: much above average). Resource sharing: This construct reflects the moderating of sharing the IT capabilities between alliance partners. For each of the five IT capabilities, respondents will be asked to report whether or not the resources are shared with alliance partners. It is hence measured as a dichotomous variable Scale Development After having established the construct domain and conceptual definitions of IT capabilities, the scale associated with them is further developed and validated. The instrument for IT capabilities comprises a five-point Likert-scale (Bharadwaj et al., 1999). In order to further assess content validity and construct validity, a card sorting exercise was undertaken (Moore & Benbasat, 1991). The items in Appendix 2 were arranged in random order and given to a panel of four experts (two IS academics, one management academic, and a management consultant). Construct definitions were provided, and they were asked to classify the items into the five corresponding categories based on their understanding of the content and construct definitions. They were also asked to report any ambiguous items with respect to the wording or meaning. A box labeled Not Sure was added in order to avoid forcing the experts to select a category if the choice were not clear 5. As Appendix 3a illustrates, this first round of card sorting resulted in a Cohen s Kappa value of An analysis of the item placement ratios and percentage of correctly placed items led to the deletion of some items. For instance, item ITI4 (iveness and reliability of IT operations) performed poorly and indeed a closer examination reveals that it is not really an underlying characteristic of the IT infrastructure capability since it deals more with the performance outcome of the operations. As such, it suffers from the kind of tautology that was mentioned earlier in this paper. In addition, this item was dropped by Bharadwaj et al. (1999) due to cross-loadings. Moreover, other items seemed to be redundant and would have potentially caused cross-loadings. The results also led to refining the wording of some conceptual definitions to better reflect what they represent. This was done with caution to retain the domain of the constructs and not change it to reflect something else. It was rather done to better clarify what the construct is supposed to represent. For instance, the definition for the IT management capability was modified to include in it the systems development activity, which makes sense seeing that it covers IT management practices such as IT planning and design and IT project management. The results of the refined measurement instrument are shown in Appendix 4. A second round of card sorting with these corrections in place resulted in a value for Cohen s Kappa of (see Appendix 3b), above the cut-off point for acceptance. Note that each 5 Details on the card-sorting exercise including the original and final survey instrument and the instructions given to the expert panel are available from the authors upon request. 241

12 construct is assessed by multiple items. This captures more of complexity of the constructs in addition to reducing measurement error by asking slightly different question (Churchill, 1979). It also allows the items to be treated as approximately interval variables and increases reliability. A pilot test will be conducted by the authors on the refined instrument in order to further assess its reliability and validity. 4. Conclusion and Implications This paper provides several important contributions to both research and practice. A synthesis of the IS literature revealed the contingent s of IT resources on firm performance. A synthesis of the strategic alliances literature showed that adopting the RBV allows for modeling the impacts of individual sets of IT resources on firm performance, which improves our understanding of performance in alliances and has the potential to reduce the mixed results in the literature. In conformance with the research objectives, the literature was synthesized to identify the key IT capabilities that are relevant in a strategic alliance context, and that may be shared across the alliance. The RBV was extended to fit the alliance context. Moreover, an RBV model of IT-based strategic alliances was developed, assessing the direct s of the IT capabilities on firm performance, and the moderating s of sharing them with alliance partners. A scale was developed and preliminarily validated to measure these capabilities. To the authors knowledge, this is the first paper that extends the RBV and applies it to the examination of IT capabilities in IT-based strategic alliances. This paper also contributes by providing a wider lens to examine the sharing of technological, human, and relationship-specific IT resources between firms. Prior studies focused mostly on the sharing of technological resources, such as the integration of EDI or other technologies. However, electronic integration involves much more than the integration of technologies, and this paper illustrates this point by elucidating a set of diverse IT capabilities that are shared across the alliance. For managers, the paper provides a framework by which they can assess the impact of their IT capabilities on firm performance. By observing for which capabilities the on performance is direct and for which it is moderated by resource sharing, managers can better decide how to allocate their resources. They will know which IT resources need to be protected within the firm s boundaries and which ones should be shared in order to yield higher performance. Of course, cooperation has limits and a firm must be careful not to share all of its key capabilities unless there is some level of trust or guarantees against opportunistic behavior from its alliance partners. There are several avenues for future research. The type of alliance may be further examined. For instance, performance of IT resources shared in joint ventures may be different from those of other forms of alliances. An example would be IT resources shared in non-equity alliances where the needed resources of a partner are mixed with other, unneeded resources. This study examined mostly the pooling of similar resources but future research can examine benefits emerging from nonsimilar, complementary resources (Das & Teng, 2000). An interesting avenue would be to also consider the mechanisms by which the resources are shared between alliance partners. Are they linked through electronic integration (e.g., EDI) or through other (e.g., social) mechanisms? Also, examining interfirm conflicts that affect the alliance performance may be of interest. Finally, the process of knowledge sharing and assimilation between alliance partners needs further development. For instance, absorptive capacity may mediate or moderate the impact of resource sharing on competitive advantage (Dyer & Singh, 1998). Much work remains to be done, but this paper has opened the door to incorporating the RBV in the examination of business value for firms engaging in IT-based alliances. 242

13 Appendix 1: Summary of findings on IT capabilities, performance, and strategic alliances Type of Direct and contingent s Focus Type of resource Outcome variable Results Source RBV single firm RBV single firm Overall IT capability Profit and cost ratios IT capabilities (access to capital; proprietary technology; technical IT skills; managerial IT skills) Sustained competitive advantage Overall IT capability positively impacts firm performance but its based on its operationalization (general ranking) several contingencies could be absorbed in its definition IT managerial skills an outward capability - is the only capability that is a direct source of sustained competitive advantage, but others can also be when used in conjunction (e.g., access to capital and managing risks) Bharadwaj (2000) Mata et al. (1995) - Conceptual () RBV single firm RBV single firm RBV single firm RBV single firm and alliance RBV alliance RBV alliance IT capabilities (IS planning sophistication; systems development; IT operations) IT capabilities (IT support for firm assets) Firmwide IT capability (strategic vision of IT; business process integration; internal IT partnerships; external IT partnerships; IT management; IT infrastructure) IT resources (technology and human) IT capabilities (value innovation; knowledge work leverage; ITenabled business platform; operational excellence; value chain extension; solutions delivery) Firm performance (operating and market-based) Firm performance (market performance; profitability) Firm performance (accounting-based and market-based) Business process performance and firm performance Resources Alliance performance (alliance as the unit of analysis) The impact of IT capabilities on firm performance is contingent on the use of IT to develop core competencies The impact of IT capabilities on firm performance is contingent on IT support for other organizational resources and on IT support for business strategy The firmwide IT capability is positively related to both measures of performance. Although the is modeled as direct, the fact that the firmwide IT capability includes external IT partnerships renders it contingent on sharing alliance resources among others The impact of IT resources on a firm s performance is contingent on other organizational resources as well as the resources of its trading partners Business success The new organizing logic requires IT capabilities to be deployed across a network relationship to achieve business success The impact of firm s resources on performance is contingent on aligning them with alliance partners in configurations that are supplementary for similar resources and/or complementary for dissimilar ones Ravichandran & Lertwongsatie n (2005) Rivard et al. (2006) Bharadwaj et al. (2002) - Conceptual Melville et al. (2004) - Conceptual Sambamurthy & Zmud (2000) - Conceptual Das & Teng Conceptual Alliance IT technological resources (EDI) Strategic The link between IT and business value in the EDI context depends on Chatfield & advantage interorganizational relationships and the level of EDI embeddedness Yetton (2000) Alliance IT technological resources (EDI) Operational Electronically integrating procurement between firms increases sales, lowers Mukhopadhya 243

14 benefits and strategic and benefits Alliance Alliance RBV alliance Direct Alliance Alliance invoice payment delays, and lowers amount of customer credit provided. Strategic benefits for a supplier depend on enhancing the system s capabilities R&D resources Firm performance The impact of JV on firm performance changes from industry to industry. Also, R&D-oriented JV negatively affect ROA while non-r&d JVs positively influence ROA R&D resources Firm performance Positive association between R&D-oriented alliances and profitability for some types of firms, but not for others Online information capabilities Firm performance (operational and financial) IT technological resources (EDI) Strategic advantage IT technological resources (EDI) Firm performance (efficiency and iveness) Financial performance is increased by customer-side capabilities but decreased by supplier-side capabilities Electronic integration of insurance firms with brokers has significant s on efficiency but not on iveness Electronic integration significantly improves the efficiency measures but not the iveness measures. EI s impact on performance is contingent on internal integration y & Kekre (2002) Berg et al. (1982) Hagedoorn & Schakenraad (1994) Barua et al. (2004) Venkatraman & Zaheer (1990) Truman (2000) Appendix 2: IT Capabilities (original instrument) Construct Conceptual Definition Construct Label in Previous Studies Operational Definition IT business partnerships capability (Bharadwaj et al. 1999) Business IT strategic thinking capability (Bharadwaj et al. 1999) IT management capability (Bharadwaj et al. 1999) IT infrastructure capability The firm s ability to foster rich partnerships between technology providers (IT professionals) and technology users (BU managers) Management s ability to envision how IT contributes to business value and the ability to integrate IT planning with the firm s business strategies Capability related to the management of the IT function, such as IS planning and design, IS applications delivery, IT project management, and planning for IT standards and controls The foundation for enterprise applications and services and is - Successful partnering between IT and business management (relationship asset) (Ross et al. 1996) - Relationship building (Feeny & Willcocks 1998) - Knowledge work leverage (Sambamurthy & Zmud 2000) - Business systems thinking (Feeny & Willcocks 1998) - Value innovation (Sambamurthy & Zmud 2000) - IT management skills (Mata et al. 1995) - IT technical skills (human asset) (Ross et al. 1996) - Leadership (Feeny & Willcocks 1998) - Technical IT skills (human asset) (Bharadwaj 2000) - Managerial IT skills (human asset) (Bharadwaj 2000) - Architecture planning (Feeny & Willcocks 1998) - IT infrastructure capability (Broadbent et al. 1999) ITBP1. Multi-disciplinary teams to blend business and technology expertise ITBP2. Relationship between line management and IT service providers ITBP3. Line management sponsorship of IT initiatives ITBP4. Climate that encourages risk-taking and experimentation with IT ITBP5. Climate that nurtures IT project championship ITBP6. IT-related educational initiatives for management BIST1. Clarity of vision regarding how IT contributes to business value BIST2. Integration of business strategic planning and IT planning BIST3. Management s ability to understand value of IT investments BIST4. Funding for scanning and pilot-testing next generation IT BIST5. Technology transfer mechanisms ITM1. Effectiveness of IT planning ITM2. IT project management practices ITM3. Planning for security, compliance, and disaster recovery ITM4. Systems development practices ITM5. Consistency of IT policies throughout the enterprise ITM6. IT evaluation and control systems ITM7. Adequacy of the IT skill base ITI1. Appropriateness of the data architecture ITI2. Appropriateness of network architectures 244